New framework launched to help city officials and insurers improve infrastructure resilience

London — Cities will need to overhaul their approach to risk management if they are to make their infrastructure more resilient to catastrophic events, according to a new report published by Lloyd’s, the specialist insurance and reinsurance market, and global engineering consulting firm, Arup.

The report, Future Cities: Building Infrastructure Resilience, finds that while risk management remains a priority for cities, it is not enough on its own, or on an asset by asset basis. Increasingly, city officials, investors and insurers will need to build resilience within and between infrastructure systems as a complementary approach to address infrastructure risk and uncertainty.

It sets out three new pathways designed to help guide the planning, design, construction and operation of core city infrastructure to improve their ability to cope with and recover from disasters:

Prevent failure — make city infrastructure more resilient to shocks so that even if parts of it fail temporarily, the overall system still works;

Expedite recovery — examine ways in which infrastructure can be restarted as quickly as possible post-disaster to save lives and prevent further failures; and

Transform performance — replace damaged infrastructure with a more resilient version as part of the rebuilding process.

Lloyd’s considers that the insurance sector could also take collective action to work with stakeholders and build greater city resilience in nine areas:

Improving data collection;

Using this new data to quantify the risk and help inform stakeholder decision-making;

Establishing metrics to enable the development of indices and models to assess resilience;

Finding ways to incentivize investment by making resilience assessments available;

Incentivizing policyholders to take risk mitigation measures through risk-based pricing;

Developing collaborative models and tools that provide a transparent, comprehensive and accessible approach to analyzing and pricing risk;

Encouraging the creation of indices that can be used by insurers to incorporate levels of resilience into the underwriting process;

Creating shared understanding of how the components and stakeholders of cities interact and what the key areas and concerns are for each stakeholder; and

John Parry, CFO, Lloyd’s, said, “Most global population increases are expected to take place in cities that are more at risk from natural hazards, and cities in general are exposed to a greater diversity of risks than ever before. It is absolutely critical, therefore, that city officials, working with insurers and other stakeholders, act to improve city resilience. The principles set out in this report represent a new approach that could substantially improve infrastructure resilience around the world.”

Trevor Maynard, Head of Innovation, Lloyd’s, said, “Multiple factors build resilience and these should be measured and summarized by creating indices. This is essential to enable insurers better to incorporate levels of resilience into the underwriting process, which would then be expected to recognize and reward the action taken by city officials where risk-based pricing is permitted.”

Samantha Stratton-Short, Associate Director, Arup, said, “Cities are complex interconnections of people that rely on infrastructure. In order to build resilience in cities, we need to understand the performance of the infrastructure that connects, provides and protects society. Using our sector expertise and evidence gathered from case studies during and after shock events, we have developed principles for enhancing resilience through planning, design, build and operations of infrastructure systems.”

Background

Global exposure to disasters has risen over recent decades. This is a trend that is considered likely to continue because most global population increases are forecast to take place in Asian and sub-Saharan African cities, which are more at risk from natural hazards. In addition, cities are also exposed to a greater diversity of risks than ever before, including rapidly emerging cyber threats and terrorism.

The rising costs of disasters is a growing concern for the public sector and the insurance industry alike; direct losses from disasters in the past decade are estimated at US $1.4 trillion. The Lloyd’s City Risk Index found that $4.6 trillion of the projected GDP of 301 of the world’s leading cities is at risk from 18 threats over the next decade, and is an example of the types of indices the report calls for. Clearly, cities will need to mitigate these risks if they are to realize their growth aims but this is a complex task.

Cities are made up of a diverse and complex mix of institutions, ecosystems, assets and infrastructure that are connected and mutually interdependent. Disruption to one part of the system – utility and transport networks, communications systems and water supplies, for example — can cause failure in other parts, with far-reaching local and global implications.

This makes assessing city risk extremely challenging — secondary and cascading impacts cannot be predicted through traditional approaches such as spatial risk assessment. The task is made more difficult by the rapid growth and development of infrastructure systems, particularly in emerging economies.

While risk management remains a priority for cities, it is arguably not enough on its own. Increasingly, city officials, investors and insurers are looking to build resilience as a complementary approach to address infrastructure risk and uncertainty. In order to better manage risk and recover quickly from future disasters infrastructure owners and operators may need to move beyond asset-by-asset risk management to build resilience within, and between, infrastructure systems. This requires consideration of how infrastructure performance might change when shock or stress events occur.

Methodology

Lloyd’s worked with Arup to develop a new set of principles to guide the planning, design, construction and operation of some of the key components of city infrastructure to improve resilience, through a four-part process:

Literature review — A comprehensive desktop review was undertaken to identify: how key threats may result in losses; macro-level trends; and existing global evidence and research in this space.

Case-study research — Desktop research and a series of informant interviews were carried out to identify key events, infrastructure system performance, city resilience outcomes and lessons learned for three case studies.

Insurance sector consultation — Lloyd’s delivered a collaborative workshop involving city-sector experts and insurance practitioners to discuss key research findings and identify potential implications and considerations for the insurance industry. This resulted in a series of recommended next steps that could help the insurance industry contribute to making cities and infrastructure more resilient.

Lloyd’s and Arup hope this study adds to understanding of city resilience, stimulates new ideas and raises new research questions, and that it can be used to guide all those stakeholders with an interest in ensuring that tomorrow’s cities are built on resilient foundations. Continued innovation, reflection and collaboration across sectors and industries are critical to address constraints in support of more resilient, inclusive, prosperous cities.